COBRA Administration
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Throughout a career, workers will face multiple life events, job changes or even job losses. A law enacted in 1986 helps workers and their families keep their group health coverage during times of voluntary or involuntary job loss, reduction in the hours worked, transition between jobs and in certain other cases. The law — the Consolidated Omnibus Budget Reconciliation Act (COBRA) — gives workers who lose their health benefits the right to choose to continue group health benefits provided by the plan under certain circumstances.
The law generally covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to plans in the private sector and those sponsored by state and local governments. Provisions of COBRA covering state and local government plans are administered by the Department of Health and Human Services.
FAQs
COBRA (the Consolidated Omnibus Budget Reconciliation Act) requires group health plans sponsored by employers with 20 or more employees to provide covered employee and their family members the right to continue group health benefits for limited periods of time in certain instances when coverage under the plan would otherwise end.
An employer must comply with COBRA if it offers health benefits to its employees and there are 20 or more employees on at least 50% of the “typical business days” during the preceding calendar year. Employers who are a Controlled Group of Corporations are aggregated and treated as a single employer when making this determination.
“Qualifying Events” are events that cause an individual to lose group health coverage. The nature of the qualifying event determines which person will qualify for COBRA continuation.
The following are qualifying events for a covered employee if they cause the covered employee to lose coverage;
- Termination of the covered employee’s employment for any reason other than gross misconduct
- Reduction in the covered employee’s hours of employment causing loss of coverage
The following are qualifying events for a spouse and/or dependent child of a covered employee if they cause the spouse or dependent child to lose coverage;
- Termination of the covered employee’s employment for any reason other than gross misconduct
- Reduction in hours worked by the covered employee causing loss of coverage
- Covered employee becomes entitled to Medicare
- Divorce or legal separation of the spouse from the covered employee
- Death of the employee
- Loss of dependent child status under the plan rules
The employer is required to notify the member by first-class mail within 30 days of the later of;*
- Date of the event
- Loss of coverage date
*The TPA has an additional 14 days to send the notice.
When the qualified beneficiary is an employee and the covered spouse and dependents lose coverage due to the employee's termination of employment or reduction in hours, the employee, covered spouse, and dependents may continue coverage up to 18 months.
The 18-month continuation period may be extended to a maximum of 36 months if a second qualifying event occurs during the 18-month continuation period. The extension does not entitle the qualified beneficiary to more than 36 months of coverage.
When the qualified beneficiary is a covered spouse or dependent child who loses coverage due to divorce or legal separation, death of the employee, the employee becomes covered by Medicare or the loss of dependent child status under the plan, coverage in force on the day prior to the qualifying event can continue for up to 36 months.
A qualified beneficiary who is determined by the Social Security Administration to have been disabled within the first 60 days of COBRA coverage is eligible for the disability extension to a total coverage period of 29 months.
- The extension may be granted provided a determination letter issued by the Social Security Administration is sent to the Plan Administrator within 60 days of receipt within the 18-month coverage period.
- The disability extension is available to all individuals who are qualified beneficiaries due to a termination or reduction in hours.
- To be eligible for the 11-month extension, affected individuals must comply with the notice requirements in a timely fashion. Premiums during the additional 11 months of coverage would be at a substantially higher rate.
Qualified beneficiaries must be given a 60-day election period during which each qualified beneficiary may choose whether to elect COBRA coverage. The 60-day election period is measured from the later of the coverage loss date or the date the COBRA election notice is provided by the employer or plan administrator. Each qualified beneficiary may independently elect COBRA coverage. A covered employee or the covered employee's spouse may elect COBRA coverage on behalf of all other qualified beneficiaries. A parent or legal guardian may elect on behalf of a minor child.
Qualified beneficiaries electing COBRA continuation coverage may be required to pay the full premium for the coverage. In calculating premiums for continuous coverage, a plan can include the costs paid by both employee and employer before the qualifying event, plus an additional 2% to cover administration costs. This means that the total premium for the continued health care coverage can be up to 102% of the premium for similarly situated individuals who have not experienced a qualifying event.
If an individual enrolled in COBRA due to termination of employment or a reduction in hours is disabled (and means certain other eligibility requirements), the maximum period of COBRA coverage may be extended for an additional 11 months, for a total of up to 29 months of continuation coverage.
In an individual enrolled in COBRA due to termination of employment or a reduction in hours is disabled (and meets certain other eligibility requirements), the maximum period of COBRA coverage may be extended for an additional 11 months, for a total of up to 29 months of continuation coverage.
In the event that COBRA continuation coverage is extended due to disability, the beneficiary may be charged up to 150% of the applicable premium during the 11-month disability extension period only. The employer or plan administrator may still only charge a qualified beneficiary 102% of the applicable premium for COBRA continuation coverage during the initial 18-month period.
COBRA premiums are tied directly to the premiums for similarly situated persons covered by the employer’s group health plan whose coverage has not terminated. As such, if premiums for employees rise, COBRA premiums may be increased as well; however, COBRA charges generally must be fixed in advance of each 12-month premium cycle.
Employers are not required to make any contribution toward COBRA continuation coverage, even if the employer made a contribution prior to the individual’s loss of benefits. Although an employer has no legal obligation to subsidize any part of the COBRA premium, an employer may voluntarily choose to pay part or all of the premium.
The initial premium payment must be made within 45 days after the date of the COBRA election by the qualified beneficiary. Payment generally must cover the period of coverage from the date of COBRA election, retroactive to the date of the loss of coverage due to the qualifying event. Premiums for successive periods of coverage are due on the date stated in the plan, with a minimum 30-day grace period for payments. Payment is considered to be made on the date it is sent to the plan. If premiums are not paid by the first day of the period of coverage, the plan has the option to cancel coverage until payment is received and then reinstate coverage retroactively to the beginning of the period of coverage.
If a qualified beneficiary underpays the premium by an insignificant amount, the plan must either accept the amount as payment in full or seek the rest of the payment. Before cancelling the qualified beneficiary’s COBRA coverage for underpaying by an insignificant amount, the plan must send a notice to the qualified beneficiary and give them at least a 30-day grace period from the date of the notice to pay the balance of the premium.
After the initial premium payment, subsequent premiums are considered to be timely if made by the due date established by the plan or within a grace period of 30 days. A plan must allow beneficiaries to pay premiums on a monthly basis.
A group health plan may terminate continuation coverage earlier than the end of the maximum period for any of the following reasons:
- Premiums are not fully paid within time limits
- The qualified beneficiary becomes entitled to Medicare benefits after electing COBRA
- The qualified beneficiary start coverage under another group health plan after electing COBRA
- Employer Ceases to maintain any group health plan
When a group health plan decides to terminate continuation coverage early for any of the above reasons, the plan must give the qualified beneficiary a notice of early termination. The notice must describe the date the coverage will/has terminated, the reason for termination and any rights the qualified beneficiary may have under the plan.